Europe’s Stubborn Inflation Problem

Bridgewater

Nicole Kagan, Kate Dunbar

Article

1 Pages

Bridgewater Associates examines why Europe’s inflation problem may remain stubborn even as energy prices retreat. Core inflation has stayed near 5%, supported by tight labor markets and rising wages, suggesting the ECB may need restrictive policy for longer while economic activity continues to weaken.

Key Takeaways

Inflation Remains Sticky: Headline inflation remained above 9%, while core inflation held near 5% despite falling energy prices.
More Tightening Ahead: The ECB had already raised rates 2.5%, with markets discounting roughly another 1% of tightening.
Markets Look Optimistic: European equities rallied more than 20% from their prior year lows even as inflation pressures remained entrenched.
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